[00:00:00] Speaker 01: Face number 21-1132, Michael Johnston at balance versus Securities and Exchange Commission. [00:00:08] Speaker 01: Mr. Cohn for the balance, Mr. Yoder for the appellee, Mr. Kerr for the intervener. [00:00:15] Speaker 05: Council, you may proceed. [00:00:18] Speaker 04: Good morning, Your Honors. [00:00:20] Speaker 04: Stephen Cohn for the petitioner, Michael Johnston. [00:00:24] Speaker 04: The SEC committed to, first, when it found that Johnston and Mitman [00:00:30] Speaker 04: for joint whistleblowers. [00:00:32] Speaker 04: Thereafter, when it ordered a payment of $13.5 million to a whistleblower who provided no original information. [00:00:43] Speaker 02: If I understand the commission's argument, which focuses almost entirely on that word provided, that it hinges on the two men you just mentioned appearing jointly to provide the information. [00:01:01] Speaker 02: accompanied by the lawyer representing both of them. [00:01:04] Speaker 02: Is that correct? [00:01:06] Speaker 02: Yes. [00:01:07] Speaker 02: So why didn't, why is it reasonable to say the two provided the information jointly? [00:01:11] Speaker 02: They both showed up. [00:01:12] Speaker 02: They provided the information. [00:01:14] Speaker 04: The reason is, is because the record shows that only Johnston provided original information and the key here. [00:01:24] Speaker 02: Well, wait a minute. [00:01:24] Speaker 02: If all the information was provided by the two of them at the same presentation, how can one say, [00:01:31] Speaker 04: who from that one that they didn't both provided because only Johnston presented the back testing information. [00:01:40] Speaker 04: The image only he spoke at the meeting only he spoke and that's confirmed in an August 3 letter to 87. [00:01:48] Speaker 04: But more important. [00:01:50] Speaker 04: The definition of original information which is the heart of this law. [00:01:57] Speaker 04: isn't predicated on presentation. [00:01:59] Speaker 04: It's part of it. [00:02:00] Speaker 04: That's how the commission sees it. [00:02:02] Speaker 04: Exactly. [00:02:03] Speaker 04: That's their error. [00:02:04] Speaker 04: If you read the definition, only information that is derived from the independent knowledge or analysis of the whistleblower, you have to be the person with the real insider information. [00:02:21] Speaker 02: Now you're taking issue with their definition or the statutory definition of the whistleblower. [00:02:26] Speaker 02: which can be two or more persons. [00:02:29] Speaker 04: So what occurs is, and I'll get to that, but in the application for the award filed by the lawyer for Mittman and Johnston, he stated as follows, Michael Johnston analyzed internal documents related to the back task. [00:02:51] Speaker 04: and discovered that city omitted the material information, including the risk to investors that was 48%, not 7%. [00:03:00] Speaker 04: Consequently, the only person who meets the definition of providing original information in the application was Johnston. [00:03:15] Speaker 02: The commission completely ignored that side of the argument. [00:03:20] Speaker 02: created the information, discovered it, what have you. [00:03:23] Speaker 02: You tend to take someone along with him to provide it. [00:03:26] Speaker 02: No, only Johnston presented it. [00:03:30] Speaker 02: The word is provided, not presented, right? [00:03:33] Speaker 02: Where is it on 287? [00:03:34] Speaker 02: You referred me to 287 to say that only Johnston spoke at the meeting. [00:03:41] Speaker 04: 287, it states as follows. [00:03:43] Speaker 04: This is the letter that was sent directly after the meeting. [00:03:48] Speaker 04: It's also confirmed in three different affidavits. [00:03:51] Speaker 04: So they're numbered paragraphs, which one is it? [00:03:53] Speaker 04: It's the very first sentence in response to your request following Michael Johnston's presentation concerning those funds. [00:04:04] Speaker 04: And then furthermore, in numbered paragraphs three and four, the lawyer says Johnston will review and present later. [00:04:12] Speaker 04: But all of the affidavits that were filed after the [00:04:17] Speaker 04: Commission made its error in the preliminary determination. [00:04:20] Speaker 04: All said Johnston. [00:04:23] Speaker 04: But what's critical here, this is such an important fact, is that presentation gets you nothing. [00:04:31] Speaker 04: It gets you nothing. [00:04:34] Speaker 04: If you look at the statute, the definition of original information, the statute says is derived from independent knowledge and analysis. [00:04:47] Speaker 04: not known to the commission this is the presentation side from any other source unless the whistleblower is the original source of the information in the application to the sdc whistleblower can make two or more person the term whistleblower can has two different meanings in the statute [00:05:11] Speaker 04: First off, Mittman was a whistleblower. [00:05:13] Speaker 04: Is that a point on which the commission disagrees with you? [00:05:16] Speaker 04: They don't deal with that. [00:05:18] Speaker 04: They lump them together to their advantage. [00:05:22] Speaker 04: The definition of whistleblower covers those who seek protection under the anti-retaliation provision. [00:05:30] Speaker 04: You don't need to give original information. [00:05:34] Speaker 04: You only have to present information to the commission. [00:05:38] Speaker 04: That's digital, very clear about that, the Supreme Court. [00:05:43] Speaker 04: But Congress was so focused on who do you give the money to [00:05:51] Speaker 04: Not who do you protect like in a normal whistleblower stat, but who do you hand over potentially large sums of money? [00:05:59] Speaker 04: So they laser focused on this concept of original information. [00:06:06] Speaker 04: And they said only that person. [00:06:08] Speaker 04: Now, how do we know that this lumping together doesn't work? [00:06:12] Speaker 04: Because if you look at the application process for an award, [00:06:18] Speaker 04: They don't say a whistleblower applies for an award. [00:06:24] Speaker 04: They say you in applying for an award. [00:06:29] Speaker 04: And the statute, the regulation, the form says original information that you provide. [00:06:37] Speaker 04: So in the application process, the commission can weed out [00:06:44] Speaker 04: Those who are mere whistleblowers, there's 60,000 of them, people who present, who give information, who may be helpful. [00:06:52] Speaker 04: That's great. [00:06:52] Speaker 04: Don't let them be fired. [00:06:56] Speaker 04: But if you're going to hand over potentially millions to a person, Congress wanted to get what it was paying for. [00:07:06] Speaker 04: They wanted to get, and if you look at the requirements, they wanted to get the real whistleblower, the person with the actual knowledge, the real insider. [00:07:17] Speaker 04: And then they had a series of other steps. [00:07:20] Speaker 04: One of those steps is you obviously have to give it to the commission. [00:07:24] Speaker 04: and they have to have a successful enforcement action of over one million. [00:07:30] Speaker 04: So they don't want trivial information. [00:07:32] Speaker 04: They want real solid information that can sanction a company for a million. [00:07:37] Speaker 04: And then there has to be a finding by the commission that your information contributed materially to that sanction. [00:07:51] Speaker 04: And the SEC investigator confirmed all of that. [00:07:54] Speaker 04: The SEC investigator said that back test was it that the back test contributed. [00:08:01] Speaker 04: And then this whole thing on presentation, if you go through the affidavits, what you will see is only. [00:08:10] Speaker 04: Johnston presented a back test. [00:08:13] Speaker 04: He discovered it, he presented it. [00:08:16] Speaker 04: So if you carefully just weave through it, you'll see every meeting that is identified as having original information, the back test, if you comb through the affidavit, I know it's a job, but you'll see it's only Johnston presenting. [00:08:34] Speaker 04: It was his discovery. [00:08:39] Speaker 02: Does everyone get a meeting? [00:08:40] Speaker 02: Pardon? [00:08:42] Speaker 02: Does everyone get a... Does everyone who ultimately gets a reward previously have had a personal meeting with the commission? [00:08:49] Speaker 02: No. [00:08:50] Speaker 04: So you only have to present, give the information. [00:08:53] Speaker 04: You do by letter, TCR. [00:08:55] Speaker 04: Because you can be anonymous, you never have to show up and you never even have to give your name. [00:09:01] Speaker 04: At the application, you have to identify who you are to make sure you're qualified. [00:09:06] Speaker 04: But you never have to show. [00:09:07] Speaker 04: Send it in, fill out the right form, over. [00:09:11] Speaker 02: So suppose in a case otherwise similar, two people, Johnston and Mittman in this case, developed, created, discovered the information. [00:09:21] Speaker 02: And one of them, Johnston, mails it to the commission. [00:09:25] Speaker 02: Is Mittman cut out? [00:09:28] Speaker 04: Yes, for only one reason. [00:09:31] Speaker 04: You do have to fill out the form and send it to the commission. [00:09:36] Speaker 04: The commission does have the discretion to waive that requirement, and they have done it for justice so required. [00:09:42] Speaker 04: So I would think in that type of case, they would probably waive. [00:09:47] Speaker 04: But you have to understand the way Congress, and then when the SEC did their regs, you have to begin with this assumption. [00:09:55] Speaker 04: In the first sentence of the legislative history on this law, original information. [00:10:01] Speaker 04: Then they carefully define it in the statute with the word means. [00:10:07] Speaker 04: Under digital, it's an absolute mandatory requirement, which means you have to be the one to develop it. [00:10:15] Speaker 04: You can see who they're trying to bring out, who they're trying to incentivize. [00:10:20] Speaker 04: Then, once you have it, you have to give it to the commission, either anonymously or in some manner, [00:10:28] Speaker 04: then you have to prove that that information was sanctioned. [00:10:34] Speaker 04: Johnston did all. [00:10:37] Speaker 01: Mr. Horn, was it impermissible for the SEC to conclude on the facts here that Mittman and Johnson were [00:10:45] Speaker 01: were joint whistleblowers? [00:10:48] Speaker 04: Absolutely. [00:10:49] Speaker 01: Your main piece of evidence... I mean, your point is that they didn't jointly have original information, but it seems under the definition of whistleblower, the SEC was, you know, it was certainly plausible to consider them as joint whistleblowers. [00:11:07] Speaker 04: No. [00:11:08] Speaker 04: And the reason is, as I say, the definition of whistleblower includes two completely different classes of people. [00:11:14] Speaker 04: Those who present information can't retaliate. [00:11:17] Speaker 04: Those who present original information to the statute get an award. [00:11:23] Speaker 01: But more important... But the original information is not part of the definition of whistleblower. [00:11:29] Speaker 04: But it is a requirement for a reward. [00:11:33] Speaker 01: I understand that, but I'm just saying at the level of defining who the whistleblower is here, why couldn't the SEC conclude that Johnston and Mittman were joint whistleblowers? [00:11:43] Speaker 04: Because, okay, a couple of reasons. [00:11:45] Speaker 04: Let's start with, neither ever said they were in 10 years. [00:11:49] Speaker 04: That Mittman, when he applied for the award, totally disavowed. [00:11:54] Speaker 04: He said, I'm an individual, and he refers to Johnston as his former colleague. [00:11:59] Speaker 04: Not one shred of paper in 10 years. [00:12:05] Speaker 04: says joint, but it gets better than that because the letter that's their primary evidence in August 6, 2010 letter where they talk about the team. [00:12:16] Speaker 04: If you read that letter, they don't say this is our formal complaint or this is our original information. [00:12:22] Speaker 04: What they say is we're preserving our rights, the rights of these three people. [00:12:29] Speaker 04: Then what happens is the SEC does its rules. [00:12:32] Speaker 04: Then Johnston asked his lawyer, contact the SEC. [00:12:37] Speaker 04: Do I have to do anything else? [00:12:38] Speaker 04: The answer is no. [00:12:39] Speaker 04: But what we know at the time is the SEC classified these cases under three different individuals and gave it three separate TCR numbers. [00:12:52] Speaker 04: And in the world of the SEC, this TCR is the big deal. [00:12:55] Speaker 04: That's how you're supposed to present your information. [00:12:58] Speaker 04: Three separate numbers. [00:13:01] Speaker 04: Then when they apply for the award, both say they're filing individually. [00:13:08] Speaker 04: Where's the record that is joint? [00:13:12] Speaker 04: But what was on the record? [00:13:14] Speaker 04: is that Johnston was the only one who gave the original information because in the application itself approved by a lawyer for Mitman and Johnston, it said it straight up. [00:13:25] Speaker 04: It also said in that same application that Johnston was the one who presented the information. [00:13:33] Speaker 04: It's right in the application. [00:13:35] Speaker 04: And I can give you that site. [00:13:36] Speaker 04: It might take me a second to find it. [00:13:39] Speaker 04: So therefore, where's evidence that the other thing that to me that is really incredibly important evidence was the first affidavit by the SEC investigator. [00:13:50] Speaker 04: They know who giving the information you're talking to them. [00:13:54] Speaker 04: She says. [00:13:57] Speaker 04: I know what Johnston gave, yeah, because he gave it all, by the way, and I don't know what Mittman gave. [00:14:04] Speaker 04: She says that she has no idea what Mittman gave, but that's validated by all the affidavits, by the applications, because only Johnston presented it. [00:14:14] Speaker 04: And then what happened? [00:14:15] Speaker 04: Then she says, well, I'll call them joint whistleblowers, although I don't know what Mittman gave. [00:14:21] Speaker 04: I said, that's erroneous. [00:14:22] Speaker 04: You just can't come up with a definition out of the blue sky if you don't know what someone actually gave or if they met the definition. [00:14:32] Speaker 04: I want to say one other thing. [00:14:33] Speaker 04: I know my time is running low, but you only get a question, which is we raised this original information directly in our appeal, administratively. [00:14:45] Speaker 04: We had the right to fully augment. [00:14:46] Speaker 04: It's essentially a de novo appeal. [00:14:49] Speaker 04: We raised it clearly. [00:14:51] Speaker 04: But in their final order, the commission completely ignored the argument, which to us is the centerpiece of the entire law. [00:15:01] Speaker 04: They ignored the argument. [00:15:03] Speaker 04: They didn't even conclude that a joint whistleblower [00:15:09] Speaker 04: can somehow get around the original information requirement. [00:15:13] Speaker 04: They didn't even say that in their order. [00:15:16] Speaker 04: They don't even discuss it. [00:15:18] Speaker 04: I would say I know why they didn't say it because Congress only wanted those with original information. [00:15:25] Speaker 04: You create exceptions to that requirement and you will undermine the central reason Congress passed that law. [00:15:35] Speaker 04: Thank you very much. [00:15:45] Speaker 05: Council for Appellee. [00:15:51] Speaker 00: Thank you, Your Honor. [00:15:53] Speaker 00: May it please the court, Stephen Yoder for the Securities and Exchange Commission. [00:15:59] Speaker 00: In its final order, the commission reasonably determined that Johnston's amendment to be treated as a single whistleblower unit because substantial evidence in the record showed that they acted jointly in providing information to the commission. [00:16:14] Speaker 00: primarily because of the use the word team. [00:16:18] Speaker 00: It's that is one piece of information that is recited in the commission's final order. [00:16:24] Speaker 00: I would point the court to the supplemental declaration of Olivia's act that is in the record and specifically to exhibit a which appears at J.A. [00:16:33] Speaker 00: 352 on and I present this in distinction to what Mr. Cohen just presented. [00:16:41] Speaker 00: He pointed to JA 387, but if you look at 352, in the second paragraph, the first full sentence, counsel for both Johnston and Mittman writes, on July 26 and 27, 2010, Michael Johnston and Michael Mittman appeared with me at your offices in New York and voluntarily presented to the SEC a portion of the original research and independent analysis developed by the Johnston team [00:17:09] Speaker 00: pertaining to the Falcon and ASEA MAT funds. [00:17:14] Speaker 00: In that sentence, both Johnston and Mittman are described as presenting information at a single meeting together. [00:17:21] Speaker 00: That was sufficient evidence for the commission to discount what was said in the other letter cited by Mr. Cohn in his opening argument. [00:17:31] Speaker 02: This is by their lawyer on behalf of them. [00:17:33] Speaker 00: Yes, this is by the lawyer on behalf of them. [00:17:36] Speaker 00: In addition, the Supplementals Act Declaration also explains that at no point during this presentation or afterwards did either Johnston or Mittman delineate specifically which pieces of information had been developed or being presented on behalf of particular individuals. [00:18:00] Speaker 00: Based on the whistleblower definition, then, the commission treated Johnston and Whitman as a single whistleblower unit and went on to conclude that they jointly satisfied the award eligibility criteria, including the requirement that a whistleblower must provide original information. [00:18:18] Speaker 00: And here, I would point, Your Honors, as Mr. Cohn did, to the definition of whistleblower, or the definition of original information, [00:18:27] Speaker 00: in section 21F, A3, that definition talks about original information being provided by a whistleblower. [00:18:35] Speaker 00: And so in that sense, it points back to the whistleblower definition appearing in subsection A6. [00:18:42] Speaker 00: And so the logically prior question is, who is the relevant whistleblower or whistleblower unit in this case? [00:18:50] Speaker 00: And that statute permits more than one person to qualify as a single whistleblower unit. [00:18:55] Speaker 00: And when those whistleblowers came into the commission and presented information, the commission thereafter essentially credited all of them, or I should say both of them, Johnston and Mittman, with all information provided by that whistleblower unit. [00:19:14] Speaker 00: At that point, Xanti, [00:19:16] Speaker 00: Nobody knew exactly what would prove most useful to the commission. [00:19:20] Speaker 00: It would be equally the case, for example, that Mittman could have provided or originated the most useful information to the commission. [00:19:30] Speaker 00: In that case. [00:19:31] Speaker 05: Let me ask you, in this situation, are you suggesting that the affidavit referred to by appellant and the affidavit to which you refer [00:19:47] Speaker 05: on behalf of APLE are not in direct contradiction to each other. [00:19:54] Speaker 05: And therefore the commission couldn't simply ignore one without acknowledging the existence of the other, or at least somehow indicating that for particular reasons, it gave more credit to one than another. [00:20:15] Speaker 00: If your honor is talking about the affidavits that Johnston presented to the commission. [00:20:22] Speaker 05: I'm talking about the way you set up the distinction. [00:20:28] Speaker 05: You said the commission could ignore the affidavit presented by a pellet because there was this other affidavit and you went on to describe it. [00:20:41] Speaker 05: And so I'm just asking [00:20:46] Speaker 05: Is that the proper way to look at the record here? [00:20:51] Speaker 00: Your honor, I would point out that my colleague, Mr. Cohn, pointed to a letter. [00:20:57] Speaker 00: It was not actually an affidavit from their council. [00:21:01] Speaker 00: And I did not mean to imply that the commission could ignore the letter that was in the record. [00:21:06] Speaker 00: What I meant to say was that where there exists ambiguity in a record as to what the facts are, the commission is permitted to choose between competing accounts of the facts, so long as there's substantial evidence supporting the commission's version. [00:21:22] Speaker 00: And in this case, the letters are not necessarily contradictory. [00:21:26] Speaker 00: The letter cited by Mr. Cohn says that Mr. Johnston made a presentation. [00:21:32] Speaker 00: But it doesn't say that only Mr. Johnston made a presentation. [00:21:36] Speaker 00: For example, if it said only or exclusively, then there would be a better argument for an outright contradiction here. [00:21:43] Speaker 00: But arguably, it's consistent with the other letter that was attached to the Olivia Zach declaration. [00:21:51] Speaker 00: And that letter said that both Johnston and Mittman had presented at this meeting in late July 2010. [00:21:58] Speaker 05: Thank you for the clarification of your argument. [00:22:02] Speaker 00: Thank you, Your Honor, for pointing that out. [00:22:04] Speaker 01: Mr. Yoder, is it the Commission's position that they need to determine who the whistleblower is before determining the question of whether the whistleblower provided original information? [00:22:18] Speaker 01: I mean, that does seem to be part of the dispute between the two sides. [00:22:21] Speaker 01: Which question is prior? [00:22:23] Speaker 00: Yes, your honor. [00:22:24] Speaker 01: So, and I'm wondering, is it the commission's general practice to determine who the whistleblower is in every case first before addressing the second question? [00:22:34] Speaker 00: That is the general practice in terms of how whistleblower award applications are analyzed. [00:22:40] Speaker 00: The logically prior question is always, does this person qualify as a whistleblower under the definition? [00:22:46] Speaker 00: And then do they meet the additional criteria specified in the statute to be eligible for an award? [00:22:53] Speaker 00: So that is the mode of analysis. [00:22:55] Speaker 00: This case was somewhat unusual in that there was a dispute as to whether one or both of these individuals should be treated as separate whistleblowers or as a single whistleblower unit. [00:23:08] Speaker 00: The commission reasonably read the statute's definition of whistleblower to permit them to be treated as a single unit because they had provided information together to the commission. [00:23:19] Speaker 05: So one of the arguments that Congress drew a distinction between who can apply and who actually can receive an award [00:23:41] Speaker 00: Are you asking, is there a distinction between who can apply and who can receive? [00:23:45] Speaker 00: I mean, certainly. [00:23:46] Speaker 05: That's my question. [00:23:48] Speaker 00: Yes. [00:23:48] Speaker 05: That's the argument that was presented. [00:23:52] Speaker 00: Yes. [00:23:53] Speaker 05: Anyone not understand that? [00:23:55] Speaker 00: No, I'm sorry. [00:23:56] Speaker 00: I had trouble hearing the audio, Your Honor. [00:23:58] Speaker 05: I apologize. [00:23:59] Speaker 05: I'll speak louder. [00:24:01] Speaker 00: Thank you. [00:24:02] Speaker 00: Anyone can apply for a whistleblower award. [00:24:06] Speaker 00: As described in the commission's brief, the practices of the commission is that once [00:24:11] Speaker 00: A commission action results in monetary sanctions of 1,000,000 dollars or more. [00:24:15] Speaker 00: The commission's office of the whistleblower posts what's called a notice of covered action on the commission's public website, inviting interested persons to apply for whistleblower awards in connection with that action. [00:24:29] Speaker 00: And pursuant to that process, anyone can submit a whistleblower application, regardless of whether they meet the whistleblower definition or the award eligibility criteria. [00:24:40] Speaker 00: But then the commission's office of the whistleblower takes those applications and processes them. [00:24:45] Speaker 00: And in the course of processing them, the initial question is, you know, did this person actually meet the whistleblower definition? [00:24:53] Speaker 05: Let me be clear of the process that you're describing. [00:24:55] Speaker 05: In other words, the commission's no longer involved. [00:24:58] Speaker 05: once the filing is accepted by the commission, by a person who claims to be a whistleblower, the commission proceeds on that assumption. [00:25:13] Speaker 05: So then when the award issue comes up, it's an administrative determination. [00:25:21] Speaker 05: I'm not clear that that was the nature of appellate counsel. [00:25:27] Speaker 00: I don't believe that the Commission ever makes the assumption one way or the other that a person who applies is necessarily a whistleblower or not. [00:25:35] Speaker 00: Those applications come in, they're received and processed by the Commission's Office of the Whistleblower. [00:25:41] Speaker 05: But the way you were describing it, and this is just because I'm not familiar with the administrative process here. [00:25:47] Speaker 06: Understood. [00:25:47] Speaker 05: Suppose I apply. [00:25:50] Speaker 05: And we go through this whole proceeding and the commission is satisfied, I'm a whistleblower. [00:25:58] Speaker 05: But then when the award comes up, it determines, I've simply plagiarized somebody else's material. [00:26:08] Speaker 05: Does the administrative body say well, [00:26:15] Speaker 05: doesn't matter, it was original by somebody and you're the one who's come before us and that's good enough or does it say, hey, you're no longer a whistleblower. [00:26:25] Speaker 05: That's not what is intended in the award. [00:26:29] Speaker 05: I mean, does that issue ever get back to the commission? [00:26:34] Speaker 05: Whereas here, as you point out, it's a little unusual because that issue came up at the very threshold. [00:26:43] Speaker 00: Your honor, one point of clarification here, at the time a whistleblower provides information to the commission, the commission does not make a determination at that time as to whether or not they meet the whistleblower definition. [00:26:56] Speaker 05: There is no prior- What are you saying? [00:26:58] Speaker 05: You say I can apply, and at what point is the determination made whether, and as I understand it, there are at least two parts to the definition. [00:27:09] Speaker 05: And really, Appellant is focusing on the second part, [00:27:13] Speaker 05: Not the first part. [00:27:16] Speaker 00: Your honor, the commission does not make any determination at the time information is provided. [00:27:23] Speaker 00: But when the Office of the Whistleblower receives an application, and that can be from anyone, then a determination is made whether the applicant meets the statutory definition of a whistleblower. [00:27:35] Speaker 00: If the record is unclear, if there's a case of plagiarism, as you suggested, [00:27:40] Speaker 00: then the Office of the Whistleblower will work with the relevant enforcement staff that brought the covered action to talk to them about who provided information during the investigation and whether that information was helpful. [00:27:54] Speaker 00: And that's the point at which any plagiarism would be uncovered. [00:27:58] Speaker 00: And then the Office of the Whistleblower prepares an initial recommendation that goes to a body of staff called the claims review staff within the Division of Enforcement [00:28:09] Speaker 00: They make a preliminary determination recommending how the commission should decide the award applications. [00:28:16] Speaker 00: Then that preliminary determination is given to the claimants and they can request the underlying supporting documentation if they wish, and they're given an opportunity to respond. [00:28:29] Speaker 00: Then the Office of the Whistleblower prepares a second recommendation [00:28:34] Speaker 00: in light of those responses, presents that initially to the claims review staff as a proposed final determination. [00:28:42] Speaker 00: And assuming that the claims review staff agrees, they then present that to the commission itself. [00:28:48] Speaker 00: And the commission, after considering it, issues a final order. [00:28:53] Speaker 00: So there was only one determination here by the commission as to whether or not these individuals were whistleblowers. [00:29:00] Speaker 00: That was at the final order stage. [00:29:04] Speaker 00: I hope that answers your honor's question. [00:29:06] Speaker 05: Yes, thank you. [00:29:08] Speaker 02: I'd like to take you back to something you said earlier, because I think I just lost the thread at the time. [00:29:14] Speaker 02: And that was the letter of 352 from the lawyer for the two claimants. [00:29:22] Speaker 02: And could you say, you pointed out that as between that and another document, there was not a contradiction. [00:29:30] Speaker 02: Yes. [00:29:31] Speaker 02: Because one of them didn't say that only Johnston [00:29:34] Speaker 00: The one that did not say only was the one cited by Mister Cone at 387. [00:29:46] Speaker 00: That one at 387 talks about Mr. Johnston making a presentation, but it does not say that only Johnston made the presentation or that he did so exclusively. [00:29:59] Speaker 00: So that was the document I was referencing, Your Honor. [00:30:01] Speaker 02: Well, this one seems to say, as I would read this sentence, that both, quote, appeared with me at your offices [00:30:10] Speaker 02: and voluntarily presented to the SEC a portion of the original research and independent analysis developed by the Johnson team, which the Johnson and others had defined as including, I think, three people. [00:30:24] Speaker 02: Yes. [00:30:25] Speaker 02: I mean, it says, doesn't it? [00:30:28] Speaker 02: They both appeared, and they both voluntarily presented. [00:30:33] Speaker 00: Yes, Your Honor. [00:30:34] Speaker 00: I agree. [00:30:34] Speaker 00: I think the letter is clear on its face. [00:30:36] Speaker 02: And then if we go to 387, what do we see there? [00:30:42] Speaker 00: If you don't mind. [00:30:48] Speaker 00: Pardon me, Your Honor. [00:30:48] Speaker 00: I misspoke. [00:30:49] Speaker 00: It's 287, not 387. [00:30:52] Speaker 00: My apologies. [00:30:55] Speaker 00: In 287, the first sentence of the letter was quoted by Mr. Cone. [00:31:02] Speaker 00: He states, in response to your request, following Michael Johnston's presentation, [00:31:10] Speaker 02: Okay, and where is the request? [00:31:16] Speaker 02: The request for information? [00:31:18] Speaker 02: Well, it's in response to your request. [00:31:20] Speaker 02: What request? [00:31:21] Speaker 02: Where is that? [00:31:23] Speaker 00: Yes, apparently, at the July 26 and 27 meeting, as I understand the record here, after the presentation was made, discussions were had about a potential follow-up presentation to take place in August 2010. [00:31:40] Speaker 00: And I think it's those discussions, that's my understanding, Your Honor. [00:31:45] Speaker 00: Those discussions are referenced here by the word request. [00:31:50] Speaker 02: So it was oral? [00:31:51] Speaker 02: The request was oral? [00:31:52] Speaker 02: Is that what you're saying? [00:31:53] Speaker 00: It was, yes, it would have been the commission's request, or the, I should say the staff's, the staff of the commission's request. [00:32:01] Speaker 02: And that was not in writing? [00:32:03] Speaker 00: Not that I'm aware of. [00:32:04] Speaker 00: It's not on this record. [00:32:06] Speaker 02: Because this, even this, if depending on the request, may be of no particular help to Mr. Johnson. [00:32:16] Speaker 02: I mean, if the request is following, in response to your request following Johnson's presentation, [00:32:22] Speaker 02: Well, if the request is, by the way, before Mittenman spoke, I have a question about Johnston's visit. [00:32:32] Speaker 00: Right. [00:32:32] Speaker 00: And Your Honor, we just don't have that level of granular detail here. [00:32:35] Speaker 02: So I would say that the letter is a very limited value to Mr. Johnston. [00:32:41] Speaker 02: I would agree, Your Honor. [00:32:44] Speaker 02: Well, maybe he'll have information on the request to which it was responded. [00:32:49] Speaker 00: Yes, exactly, Your Honor. [00:32:52] Speaker 00: And unless the court has further questions, the commission is prepared to rest on its brief. [00:32:58] Speaker 00: Thank you very much. [00:33:00] Speaker 05: Thank you. [00:33:06] Speaker 05: So, counsel for intervener. [00:33:10] Speaker 03: Yes, good morning, your honor. [00:33:11] Speaker 03: Justin Scherr on behalf of intervener Michael Mittman may please the court. [00:33:16] Speaker 03: The appellant's argument rests on inserting words as the definition of [00:33:22] Speaker 03: whistleblower that just aren't in this. [00:33:25] Speaker 03: But the appellant is arguing that the court should analyze whether Mr. Mittman and Mr. Johnston jointly developed the original information or whether they jointly, whether they requested to be treated as joint whistleblowers or whether they actually ultimately submitted their whistleblower application. [00:33:45] Speaker 03: Join me. [00:33:46] Speaker 03: Those words are not in the statute. [00:33:48] Speaker 03: All that whistleblower definition requires is that the information be provided. [00:33:55] Speaker 03: And the record has ample evidence that they did so and supports. [00:33:59] Speaker 03: Yes, that's reasonable. [00:34:01] Speaker 03: The letter is one example, a supplemental affidavit. [00:34:05] Speaker 03: The staff member from the SEC specifically says, and this is joint appendix, page 349, paragraph five, where she says, in late July, 2010, the Johnston team, in quotes, including Johnston and Midman, identified a problem with the back testing report, which meaningfully advanced the investigation. [00:34:27] Speaker 03: So the record is very clear that they provided the information, [00:34:31] Speaker 03: But even if, for some reason, the court looks to whether Mr. Mittman himself was involved in developing the information, there is also evidence in the record that he did so. [00:34:41] Speaker 03: There's a report that in his whistleblower application, he references having prepared himself, or primarily himself. [00:34:52] Speaker 03: And that's called a volatility report. [00:34:55] Speaker 03: That is the back-testing report that the appellant has identified as the primary source of original information. [00:35:03] Speaker 03: And that's on Joint Appendix page 182. [00:35:13] Speaker 03: In addition, there's also an email attached to that whistleblower application, going to NXP 28, where the counsel representing both Mr. Mittman and Mr. Johnson at the time, presented that backtesting report. [00:35:25] Speaker 03: Again, it's called a volatility report. [00:35:26] Speaker 03: He said, this was repaired by my clients, plural, both of them. [00:35:31] Speaker 03: So even if the court were inclined to look at whether Mr. Mittman was himself involved in developing this information, the record supports that and supports the SEC's decision as reasonable. [00:35:41] Speaker 03: Now that the record does not have [00:35:43] Speaker 03: affidavit affidavits from his current explaining all this because the administrative process at the SEC level did not allow for it. [00:35:54] Speaker 03: We did not know that Mr. Johnston was challenging Mr. Mittman's entitlement to a whistleblower. [00:36:01] Speaker 03: We did not see his affidavits addressing this. [00:36:05] Speaker 03: So Mr. Johnson argues that this issue is uncontested in his brief [00:36:10] Speaker 03: There's a reason because we didn't know that this was an issue. [00:36:13] Speaker 03: And that's why the court isn't seeing David. [00:36:16] Speaker 03: So just ask the court to keep that in mind considering. [00:36:20] Speaker 03: Yes, is reasonable. [00:36:23] Speaker 02: Was Mr. Eindhoven ever represented by Mr. Blumenfeld when they were providing the information? [00:36:31] Speaker 03: Yes, they were pointedly represented by that. [00:36:34] Speaker 02: All three. [00:36:35] Speaker 03: Correct. [00:36:36] Speaker 03: And then later, [00:36:37] Speaker 03: out and that's why we're that's why they and ultimately we're here today one other argument that makes the merits is that a didn't submit their whistleblower applications word jointly there is no mechanism whistleblower application asked for a single name but mr. Johnson did his best to signify the signal to these that we are joined with [00:37:03] Speaker 03: If you look at Joint Appendix, page 14, he essentially says, I'm submitting this application. [00:37:08] Speaker 03: So if they could have that, that's essentially what they tried. [00:37:14] Speaker 03: Just briefly on jurisdiction, if I may, Your Honor, the statutory regime does not allow an appeal based on the amount. [00:37:25] Speaker 03: The SEC clarified that that includes an appeal based on the allocation of. [00:37:30] Speaker 02: Well, I don't think anything that's been argued here today [00:37:36] Speaker 02: drifts over into that. [00:37:37] Speaker 02: I'm concerned about the amount. [00:37:41] Speaker 03: Well, I think ultimately what Mr. Johnson is asking. [00:37:43] Speaker 02: That's always good. [00:37:45] Speaker 02: Everybody's here because they want more money. [00:37:47] Speaker 02: Nobody's here to give it away or whatever. [00:37:50] Speaker 03: Fair enough, Your Honor. [00:37:51] Speaker 03: But I think what the statute and the statutory regime intended was denying an award, come to this court and say, I should have been able to participate. [00:38:00] Speaker 03: yes, you got it wrong. [00:38:02] Speaker 03: Um, it is does not, it should, it should not be read to allow claimant to come in and say that other wasn't the SEC got it wrong and giving that other thing that that suggests that somebody could come up, you know, a member of the public would come to this board and say, yes, got it wrong about that stranger. [00:38:21] Speaker 02: Again, the only reason Mr. Johnson has standing from somebody else coming to [00:38:27] Speaker 03: Right. [00:38:27] Speaker 03: But the only reason Mr Johnson has an argument that he has standing is because it affects the amount of his award. [00:38:34] Speaker 03: The SEC's decision was reasonable. [00:38:36] Speaker 05: All right. [00:38:47] Speaker 05: Thank you. [00:38:48] Speaker 05: Council for Appellant. [00:38:51] Speaker 04: Yes, I would first just like to address the concern about who presented the information. [00:38:58] Speaker 04: And what's very important is when Johnston filed his original application, all three were represented by the same lawyer who had primary responsibility for the case. [00:39:09] Speaker 04: Johnson had no idea that Mittman would file his own. [00:39:13] Speaker 04: So his application needs to be viewed in that light. [00:39:16] Speaker 04: But even in that light, in terms of presentation, JA32, [00:39:22] Speaker 04: The Johnston group arrived in New York. [00:39:24] Speaker 04: This is the July 26 office where Michael Johnston voluntarily provided sworn testimony to prevent new original information and independent analysis to the SEC. [00:39:39] Speaker 04: He breaks [00:39:41] Speaker 04: I'm using the team and they say Johnston, but they didn't even know that it was going to go behind their back. [00:39:47] Speaker 04: But they say that way. [00:39:49] Speaker 04: But even more interesting is J a sixty seven. [00:39:54] Speaker 04: Again, look what is stated here. [00:39:56] Speaker 04: Mr. Johnston's. [00:40:00] Speaker 04: post Dodd-Frank original information consisted of 6,391 pages of new independent analysis and his complete assistance, which was provided extensively to the SEC over 28 months. [00:40:18] Speaker 04: And then they go on. [00:40:19] Speaker 04: Mr. Johnston's post Dodd-Frank original information did significantly contribute to the SEC's enforcement action. [00:40:27] Speaker 04: He's talking Johnston. [00:40:30] Speaker 04: I would even say, if he said team, I could explain it because they didn't know what Mittman was up to. [00:40:35] Speaker 04: And remember, Mittman had access to this information. [00:40:40] Speaker 04: All this information before he filed on his own, break with the group and went in for his own money. [00:40:48] Speaker 04: And violation of all, you know, we don't need to get into the other agreements, but what we'll say is this is very clear. [00:40:54] Speaker 04: And why this is so significant is because of the affidavit of the SEC investigators that there is no conflict between her two affidavits. [00:41:07] Speaker 04: In her second affidavit, she reaffirms all of the arguments and statements she made in her first affidavit. [00:41:17] Speaker 04: And this is where it really comes down to. [00:41:19] Speaker 04: This is the record which was ignored. [00:41:23] Speaker 04: These are facts which the commission ignored. [00:41:28] Speaker 04: And this is critical. [00:41:30] Speaker 04: This is the SEC investigators. [00:41:32] Speaker 04: So the way you have to understand this is the investigators interact with the whistleblowers. [00:41:38] Speaker 04: And in this case, for a period of years, they really know everything. [00:41:43] Speaker 04: Then it goes to claims review and independent group does it exact the one who worked with the whistleblowers the whole team for two or three pretty much five years. [00:41:53] Speaker 04: Look what she says I'm contradicted. [00:41:57] Speaker 04: Well, we have significantly more contact with Michael Johnston. [00:42:00] Speaker 04: We have no insight. [00:42:04] Speaker 04: into how much Michael Mitman contributed to the material. [00:42:09] Speaker 04: The application says it was all Johnston. [00:42:14] Speaker 04: The investigator who worked with them had no insight into Mitman. [00:42:19] Speaker 04: That supports the application. [00:42:23] Speaker 04: Then, when Johnston saw the preliminary decision and realized the SEC got it wrong, he filed detailed affidavits. [00:42:33] Speaker 04: Now, Midman says he couldn't file an affidavit. [00:42:37] Speaker 04: Absolutely not true. [00:42:38] Speaker 04: Anyone can file a statement. [00:42:42] Speaker 04: To the SEC augment the record on the basis of a preliminary determination. [00:42:48] Speaker 04: You don't have to be appealing it. [00:42:49] Speaker 04: Anyone can. [00:42:50] Speaker 04: It was right in the letter sent to everybody. [00:42:52] Speaker 04: Midman knew he went behind Johnston's back. [00:42:56] Speaker 04: Midman knew that he didn't give the original information on back test. [00:43:02] Speaker 04: And Midman knew that he never alleged [00:43:06] Speaker 04: joint whistleblower stats. [00:43:07] Speaker 04: And he also knew, which we didn't have at the time, in his own application, it was individual, former colleagues, he knew all that. [00:43:16] Speaker 04: He easily had the, he had the opportunity to augment the record he chose not. [00:43:23] Speaker 02: Make sure I understand some of these references at 32 and 67. [00:43:25] Speaker 02: Yeah, 32 and 54, I believe. [00:43:27] Speaker 02: Well, you mentioned. [00:43:31] Speaker 04: I might be wrong. [00:43:32] Speaker 02: Oh, no, no, Jay, 54 is the internal [00:43:36] Speaker 02: 67 on the JA. [00:43:38] Speaker 02: Oh. [00:43:41] Speaker 02: This document is the application. [00:43:45] Speaker 02: Correct. [00:43:47] Speaker 02: So who wrote these words? [00:43:49] Speaker 04: These words would have been written either by my firm or Mr. Blumenfeld. [00:43:55] Speaker 02: You will see Blumenfeld. [00:43:56] Speaker 02: This is submitted on behalf of Johnston. [00:43:59] Speaker 02: Signed by Johnston. [00:44:01] Speaker 02: So these are Johnston. [00:44:03] Speaker 02: attribute these words to Johnson. [00:44:04] Speaker 02: Correct. [00:44:05] Speaker 02: Your application must be filed under oath. [00:44:09] Speaker 02: And at 67, you read to us Johnson's post Dodd-Frank original information consisted of 63, 91 pages, right? [00:44:18] Speaker 02: Yes. [00:44:19] Speaker 02: That's Johnson speaking. [00:44:22] Speaker 02: And at 32, you also cited [00:44:29] Speaker 02: Which paragraph or what date is that? [00:44:31] Speaker 04: Okay, that's 32, JA 32, the paragraph that begins with July 26, 2010 morning. [00:44:36] Speaker 02: The Johnston group arrived, right? [00:44:42] Speaker 02: Yes. [00:44:44] Speaker 02: And there is a page here. [00:44:53] Speaker 02: Well, let's look at, for instance, 38. [00:44:57] Speaker 02: The Johnson group satisfies voluntary submission requirements. [00:45:01] Speaker 02: That's the group. [00:45:05] Speaker 02: There's another point in here where the 6391 is referred to again. [00:45:11] Speaker 02: One of these Roman numeral pages with a black box. [00:45:14] Speaker 02: You know what I'm talking about? [00:45:19] Speaker 02: Your Honor. [00:45:20] Speaker 02: There it is. [00:45:20] Speaker 02: I think it's 52, 52. [00:45:21] Speaker 02: J-852? [00:45:23] Speaker 02: Yeah. [00:45:29] Speaker 02: Middle bullet point, new original information included 6391 pages of new independent analysis provided to the SEC. [00:45:39] Speaker 02: All of Johnston Group original information satisfies all whistleblower rules. [00:45:42] Speaker 02: So he's not claiming any uniquely individual proprietorship. [00:45:52] Speaker 02: Your Honor, on 6391... Everything is the group at this point. [00:45:57] Speaker 04: Remember, this was filed as an individual application on Mr. Johnston when he thought that this team that had existed 10 years before Dodd-Frank was even passed, not joint whistleblowers, but a team that had its own structure. [00:46:14] Speaker 04: They were financial advisors who worked together. [00:46:17] Speaker 04: He gave this document to Mr. Mittman. [00:46:21] Speaker 04: Mr. Mittman had opportunity to weigh in on it. [00:46:26] Speaker 04: At the time he did it, he had no idea that he would have to separate his contributions with Mitman's. [00:46:36] Speaker 04: No idea whatsoever. [00:46:38] Speaker 04: But after we got the preliminary determination, we filed these detailed affidavits that did separate what happened in glorious detail. [00:46:50] Speaker 04: I mean, page after page. [00:46:52] Speaker 02: It's understood as a jointly. [00:46:54] Speaker 02: Everyone agrees that there was a time when there was some sort of agreement among the three members of the team as to the division of proceeds. [00:47:03] Speaker 02: Exactly. [00:47:03] Speaker 04: And just so you know, and it's in the affidavit, [00:47:07] Speaker 04: going back to when they were working together financially, that division was predicated, you look at how much money each person contributed to the case, not the information, how much money. [00:47:20] Speaker 04: Johnston put up about a million, Mittman put up about 44,000. [00:47:24] Speaker 02: Okay, but the division is much more, well, I don't know, do we know what the division was in the agreement? [00:47:31] Speaker 04: Yeah, as I said is the working relationship of the team [00:47:36] Speaker 04: It's in one of the affidavits, Johnston's, and probably Arnold's. [00:47:40] Speaker 04: The way the team had worked before Don Frank was passed is they would look at how much money you put in. [00:47:45] Speaker 04: What was your skin in the game? [00:47:47] Speaker 04: It wasn't based on being joint. [00:47:49] Speaker 04: It wasn't based on the quality of information. [00:47:51] Speaker 02: It was on money. [00:47:52] Speaker 02: So does that mean that Arnold put in any money? [00:47:55] Speaker 04: Yeah, he put in money. [00:47:57] Speaker 04: And Johnston paid like, I think, 92%. [00:48:00] Speaker 04: It's in the affidavit. [00:48:02] Speaker 04: And that was the understanding. [00:48:03] Speaker 04: It would be a simple rule of thumb. [00:48:05] Speaker 04: Johnston was in charge of the team. [00:48:07] Speaker 04: Arnold says he was the whistleblower. [00:48:09] Speaker 04: He had the original information. [00:48:11] Speaker 04: The lawyer for all three says Johnston discovered it. [00:48:16] Speaker 04: Johnston presented it. [00:48:18] Speaker 04: So if you're dividing contribution by original information, it's all Johnston. [00:48:24] Speaker 02: I read from a letter from the lawyer, Blumenfeld. [00:48:27] Speaker 02: but said flat out, Johnston and Mittman went to the SEC and presented the information. [00:48:33] Speaker 02: Correct. [00:48:33] Speaker 04: And that brings you to the other point. [00:48:37] Speaker 04: And I believe counsel for Mr. Mittman said so. [00:48:40] Speaker 04: At the time, no one knew what would be classified as original information according to the statute. [00:48:48] Speaker 02: Three requirements. [00:48:50] Speaker 02: You've maintained that only Johnston made the presentation. [00:48:54] Speaker 02: Blumenfeld's letter is to the contrary. [00:48:56] Speaker 04: Because they were thinking in terms of the team, it was not done to differentiate. [00:49:03] Speaker 04: And the presentation we're talking about here is the presentation on the back deck, which is the only presentation that is relevant. [00:49:13] Speaker 04: And the affidavits filed on the record, which were ignored completely by the SEC, make that point very clear. [00:49:23] Speaker 04: And what those affidavits lead to a conclusion is that the SEC is giving $13.5 million to a person who provided no original information as defined under the statute. [00:49:41] Speaker 02: I have your point on that. [00:49:45] Speaker 05: All right, counsel any further clarification in response. [00:49:48] Speaker 04: One thing just one thing very quickly. [00:49:51] Speaker 04: They said that the SEC doesn't determine whether you're a whistleblower until they review the applications. [00:49:58] Speaker 04: That is not correct. [00:49:59] Speaker 04: You become a whistleblower the moment you give information to the SEC, because you're protected from retaliation. [00:50:08] Speaker 04: As I say, the definition of whistleblower has two distinct meanings. [00:50:11] Speaker 04: So Mittman was a whistleblower. [00:50:13] Speaker 04: The moment he walked into that door, he became a whistleblower. [00:50:17] Speaker 04: But that doesn't mean you're entitled to an award. [00:50:21] Speaker 04: You're entitled to an award. [00:50:23] Speaker 04: It's a separate criteria predicated on original information, and I would view [00:50:29] Speaker 04: only a strict application of that rule. [00:50:32] Speaker 04: You cannot let the commission just wander about. [00:50:35] Speaker 04: They have to give the money to precisely who Congress wanted to get a financial incentive as opposed to being protected from being fired or black. [00:50:48] Speaker 04: So I want to thank you. [00:50:49] Speaker 04: I see I've gone over my time. [00:50:50] Speaker 04: I want to thank you very much for this opportunity. [00:50:55] Speaker 05: Thank you. [00:50:55] Speaker 05: Thank you. [00:50:56] Speaker 05: We'll take the case under advisement.